Interviews, insight & analysis on Ecommerce

Not every successful start-up can ultimately deliver

by Glynn Davis, founder, Retail Insider

Two heavyweights of the online revolution, and primary contributors to the hubris that built up around disruptive tech start-ups, have been in the news recently for very different reasons. 

Co-working company WeWork shocked the markets – yet again – with a rather ominous statement indicating that “substantial doubt exists about the company’s ability to continue as a going concern”. After hitting an incredible $47 billion valuation at one point in the upcycle, the end-game in the downcycle could involve it ending up at $0 as onerous lease commitments ultimately strangle the business. 

In contrast, another big beast of the start-up world that also flirted with oblivion released a positive statement revealing that it had made a profit for the first time in its chequered history. Although Uber is predominantly known as a taxi business its rise to profitability has been fuelled by its Uber Eats division delivering take-away food.

This good news coincided with positive numbers also coming out of another major tech firm, UK-based Deliveroo, which competes aggressively with Uber in the food delivery market. The company’s losses have halved in the first six months of the year and it is set to return £250 million to its shareholders. Deliveroo has not committed to discussing when it might become profitable on a cashflow basis but the signs are much more positive than they have been in recent years.

These remain interesting times for the delivery businesses whose prospects I’ve been sceptical about in the past but which now seem to be gradually settling into a more sustainable pattern of growth. A sign of how Uber Eats has established itself in the market came with the recent decision by Domino’s to finally use the service after holding out for years. It recognised that using only its own couriers was holding its delivery capabilities back. This followed a similar decision by rival Pizza Hut that joined-up with Uber Eats a year ago. Take-away food brands now recognise they really do need the third-party delivery firms, whether they like it or not.

Meanwhile in the UK, Deliveroo’s serious breakthrough into potentially becoming a sustainably profitable business has been its decision – and significant ongoing progress – to deliver on-demand groceries for the major supermarkets and food retailers. Such has been its success that it now works with 8,000 grocery partner sites in the UK & Ireland along with 10,000 overseas. This currently accounts for 11% of the business globally, and a higher proportion in the UK. Will Shu, founder of Deliveroo, has stated that the company now fulfils more grocery orders per week than Ocado Retail. 

And this arm of the business is growing at a fair clip as the company improves the grocery ordering interface on its app. It is also opening further physical Deliveroo Hop stores with the likes of Waitrose and Morrison’s as well as selling its Hop-as-a-service software to partners like Asda that all helps to serve up a rapid grocery delivery proposition. 

There has also been some serious work done on integrating the grocery and take-away food aspects of the business whereby restaurant orders can be topped-up with a bag of groceries through the order tracking page on the app and all for no additional fees to the customer. This bumping-up of average order values will potentially have a marked impact on the financials of the company as it grows both its food and grocery divisions in tandem.

These developments by Deliveroo have undoubtedly been a contributing factor behind the hardly surprising failure of the rapid commerce players. They briefly proliferated in the marketplace when borrowing was cheap and investors embraced the winner-takes-all approach involving effectively buying sales. 

Deliveroo, Uber and WeWork also played very actively in that expensive game for some years of course but the former pair have now adapted to changing times and fallen in line with the more disciplined approach that is now demanded and is absolutely essential for a sustainable and profitable future. 


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